Who Pays for Business Valuation? The Seller or the Buyer?
Determining the value of your business is a crucial step – whether or not owners/partners are interested in selling or not. This information can be utilized in a multitude of ways, from informing solid financial decisions and creating targeted marketing strategies to complying with requirements of divorce proceedings and satisfying IRS guidelines. It is not an insignificant undertaking: it can cost from $5000 – $7000 on the lower end to more than $20,000, depending on the scope of the project. Cost is certainly a major consideration, as is the question of who pays for business valuation. In this post, we’ll discuss this as well as provide insight into who performs the process.
When it Comes to Selling Your Company, Who Pays for Business Valuation?
A business valuation is a process in which a professional uses objective metrics and evaluates every aspect of a business (from physical assets to intellectual property to social license to operate) in order to determine a company’s current worth or value on the market. As mentioned, this is essential when it comes to tax reporting, financial decisions, court proceedings (e.g. divorces, shareholder disputes, lawsuits, etc.), and – of course – transactions.
Whether you are selling or buying a company, you need to know what it is worth. Not what you think it’s worth; not what it should be worth; not what it’s worth to you. It is what it is worth on the market from an objective standpoint.
Now, let’s look at a scenario in which you have a company you wish to sell. There is a potential buyer, and you need a valuation – a price tag if you will – in order to move the transaction along.
In this case, who pays for the business valuation?
Typically, the answer is you. A business valuation professional will need access to information and data – lots of it. Some of this is sensitive and confidential; a buyer would not have access to it, and this means their valuation would not be thorough or accurate.
While you are paying for the business valuation, it is truly an investment in your future. If you are selling, plan to sell, or would like to leave that option on the table, the insights contained in a valuation help you reach and engage the right buyers.
Who Does Business Valuation?
Handing sensitive documents, financial information, and other data about your business to someone else can be challenging. There is certainly a significant amount of trust that needs to be established in the relationship. The first step is determining who can conduct a business valuation – after that, it’s essential to do your homework, vet the professional, and, ultimately, go with your gut!
So, who does business valuation? They may fall into the following industries/sectors:
- Valuation Specialists
- Business Advisors
- Real Estate Agents
- Business Brokers
- Merger & Acquisition Specialists
If such a wide variety of professionals can perform a business valuation, to whom do you entrust the task? It is important to look at credentials. When it comes to valuation, qualifications are key to a thorough, competent, complete job. Look for a professional who has one of the following:
- Accredited Senior Appraiser (ASA). Sponsored by the American Society of Appraisers, this professional has at least five years of experience in appraisals, relevant education, peer review, referrals, and successful completion of the Uniformed Standards of Appraisal Practice exam.
- Chartered Financial Analyst (CFA). A CFA is elite when it comes to company analysts and valuation specialists.
- Accredited in Business Valuation (ABV). This is a credential primarily earned by CPAs who want to value businesses. They undergo requisite education, pass a rigorous exam, and must have extensive valuation experience.
- Certified Valuation Analyst (CVA). Another credential for CPAs, the CVA role requires training, references, an exam, and experience hours.
When wondering who pays for business valuation, it’s important that you do your research in order to select the best company/individual to perform the valuation. Ensure that they have the necessary education, experience, and credentials to deliver optimal results.
Business Valuation from the Experts
If you are in the process of selling your business or simply want to plan for the future, contact AMB Performance Group to discuss the business valuation process and how it can be one of the most critical tools in your arsenal as you move forward.